Is GBP/USD set for a sympathy bounce? European open – 25th July 2023

Asian Indices:

• Australia's ASX 200 index rose by 37.6 points (0.51%) and currently trades at 7,344.00
• Japan's Nikkei 225 index has fallen by -139.29 points (-0.43%) and currently trades at 32,561.65
• Hong Kong's Hang Seng index has risen by 590.51 points (3.16%) and currently trades at 19,258.66
• China's A50 Index has risen by 396.85 points (3.18%) and currently trades at 12,894.72

UK and Europe:

• UK's FTSE 100 futures are currently down -12 points (-0.16%), the cash market is currently estimated to open at 7,666.59
• Euro STOXX 50 futures are currently down -6 points (-0.14%), the cash market is currently estimated to open at 4,377.03
• Germany's DAX futures are currently down -30 points (-0.18%), the cash market is currently estimated to open at 16,160.95

US Futures:

• DJI futures are currently down -15 points (-0.04%)
• S&P 500 futures are currently down -1 points (-0.02%)
• Nasdaq 100 futures are currently down -1.75 points (-0.01%)

• Sentiment was positive during the Asian session on expectations that China will increase stimulus, after State agency Xinhua quoted the Politburo of saying macro adjustments will be implemented “in a precise and forceful manner" and strengthen counter-cyclical adjustments via prudent monetary policy and pro-active fiscal stimulus
• The China A50 broke to a 5-week high in line with our bullish bias and shows the potential to reach 13,500 (as long as it can hold above today’s low)
• The PBOC showed that they’re serious about pushing back against currency depreciation by raising the yuan fix by 500bp, sending USD/CNY sharply down to a 6-day low
• Whilst Europe’s weak PMIs point to a much faster slowdown, they also point to lower price pressure which therefor removes some heat for the ECB to hike in September. And that helps explain how the DAX took it all within its stride to print another ‘sideways’ day.
• The German Ifo business report is the main calendar event today at 7:00 BST, but given it has turned lower over the past few months and we had weak PMIs overnight, it is debatable as to how much of a surprise a weak print would be. That said, it could further scale back bets of a September ECB hike or even raise some hopes of a pauser this week, and weigh further on EUR/USD.

• AUD/USD and NZD/USD were the strongest majors during the Asian session as they tracked Asian indices higher
• EUR/USD closed beneath the May high of 1.1095, and that level may provide a level for bears to fade into if its Asian-retracement higher continues to drift that way without conviction
• EUR/GBP fell to a 3-day low after printing a couple of hammers near 7-week highs, although support has been found around a 38.2% Fibonacci level near 0.8620. We’re looing for evidence of a swing low after the currency pullback and for momentum to realign with the bullish momentum of the daily timeframe.
• USD/CHF looks like it wants to reach for the 2021 low at 0.8758, and yesterday’s upside break of its sideways rage on the 1-hour chart could keep it on bullish watchlists for intraday traders
• 1-day implied volatility levels sits ~65% of the 20-day average, which means intraday traders may want to retain smaller targets unless we’re dealt with a fresh volatility-inducing catalyst

GBP/USD 1-hour chart:

GBP/USD has fallen for seven consecutive days, which is its most bearish sequence since March 2020. Yet with bearish momentum waning and a looming FOMC meeting, its downside could be limited over the near-term and could face risks of a technical bounce.

The 1-hour chart shows prices are respecting trend support and holding above the June (close) high. Two of the more prominent cycle lows leading into recent cycle lows were accompanied with very negative delta volumes, which suggests bears may have been caught short at these lows and may look to cover to further support prices. We also saw volumes rise alongside prices in yesterday’s NY session, so the near-term strategy is to seek dips for a near-term bullish play.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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